- Date 16 March 2017
Frankfurt am Main
If we have learned anything from the lessons of the past, it is that nationalism and protectionism are never the right answers. We cannot cut ourselves off from the problems of the world. And we should not be fooled by what look like very simple answers to the complex challenges facing us. Isolationism is always the wrong choice. It can be very tempting in the short-term, but in the long-run it only serves to undermine trust, destroy wealth and damage societies. Globalization and digitalization mean that we are more connected and more dependent upon each other today than at any other time in our history.
One of the central political challenges of the twenty-first century has been to find a way of balancing the sometimes diverging, certainly legitimate interests of the various actors involved. It is to find a global platform on which to build a stable order in an open world with fair and reliable rules.
The G20 has proven to be a good platform for this so far. We have agreed on important financial sector regulation so as to end wrong incentives for the financial industry and prevent future bailouts at the expense of taxpayers. We have agreed on important rules against base erosion and profit shifting in international taxation and on the necessary information exchange. We have maintained and developed a well-functioning and rules-based global financial architecture which has successfully dealt with many problems and crises.
But the need to balance the opportunities and risks presented by globalization remains. We will only be able to achieve this – in a world of rapid change, with ever-increasing technological advances and ever-more mobile capital – by increasing and improving our coordination, by continuing to act together and not by going it alone. We were well aware of this fact when we first founded the G20 at the turn of the century. Back then, we set it up in response to the financial crisis in Asia. During the global economic and financial crisis, the G20 then became the most important and the most effective forum of global economic policy coordination.
The world has certainly not got any easier since then. We cannot rewind the clock and reverse globalization, despite what some might think. But we can shape it. And why should we try to reverse globalization? Countless people are better off today than they have ever been. Globalization has lifted hundreds of millions out of poverty and given them the opportunity to take control of their own lives. And yet many feel left behind. There is a growing feeling of injustice. Many see not the benefits of globalization, but a growing gap between rich and poor, between the haves and the have-nots, between the elite and the rest. If we do nothing to change this, we can expect a rise in populist parties and demagogues, more distrust of policymakers and business leaders, an increase in nationalism and protectionism, and a rise in instability around the world, with all its negative effects for sustainable growth. We are seeing it already in some parts of the world.
So what do we do to prevent this?
How do we address the shortcomings of globalization?
I am convinced that we can find the answers within the G20.
As the most comprehensive instrument of global governance, we have to.
During our German Presidency of the G20, we are focusing on three areas:
- Strengthening resilience of our economies.
- Improving investment conditions, especially in Africa.
- Shaping digitalisation.
We have to make our economies more robust. The world is still feeling the effects of the last financial crisis, and we cannot exclude the possibility of further turbulence. It is therefore crucial that we increase the resilience of our economies, and build buffers to absorb any future shocks. Global debt – public and private – has risen to historical highs. We need to gradually reduce levels of indebtedness and stop relying on growth fueled by credit-financed consumption. This requires growth-friendly consolidation, banking clean-up and structural reforms.
Some try to discredit this approach with populist slogans like austerity. But this only serves to distract from the uncomfortable fact: We simply have too much debt. Ultra-loose monetary policy in many regions is unhelpful. It is encouraging undue risk taking, policy complacency, capital misallocation and asset price bubbles and will continue to do so if it is not reversed in time. In fact, it might even raise rather than reduce the risk of yet another crisis. And the ability of many countries to respond to any future crisis is severely hampered by high debt-levels.
During our presidency, we will propose measures to tackle this challenge. Specifically, we will:
- propose principles to enhance the resilience of G20 members and the global economy,
- encourage actions to strengthen resilience in our country growth strategies, and
- ensure an effective and consistent implementation of agreed policy measures and regulatory reforms.
Shaping globalization also means dealing with poverty and creating opportunities.
We intend to address this by improving investment opportunities, especially in Africa. Together with our African partners, we want to encourage private investment and investment in infrastructure. This should help make private investment in Africa more attractive by making it more secure, and reducing the barriers to investment. We call this a “Compact with Africa”. The objective is to boost growth and jobs, promote inclusion and give people economic perspectives at home so that they do not have to leave their home country to seek subsistence elsewhere. The focus on Africa is intended to improve the framework conditions. This should encourage investors because the risks involved will become clearer and smaller.
The third focus is on the opportunities and challenges to the financial sector from digitalization. Digital innovation improves efficiency, supports growth and enhances global financial inclusion. We can reap huge benefits if we embrace the full potential of digital finance. Of course, we will also have to monitor the implications for financial stability and, where necessary, actively address these.
We have already achieved a lot within the G20. But there is still much to do. We are continuing the work of the Chinese Presidency to ensure that the agreements we have reached are also implemented. This applies both to a fairer system of international taxation and to our work on banking regulation and the international financial architecture. We have to ensure that our financial markets, and also our real economies, become more competitive. In Europe, for example, one of the ways we can do this is to make progress on the capital markets union, to improve the financing opportunities for industry.
Long-term global stability and growth cannot be achieved without a well-functioning system of global financial market regulation, based on resilience, transparency, proportionality and trustful international cooperation. I am fully aware that some people, maybe even some of you in this room, are not the biggest fans of financial regulation. It is true that new rules can mean additional burdens for banks. It is also true that not every regulation is good regulation. And it is perfectly okay to occasionally review regulation to ensure that it is up-to-date, adequate and proportional. I accept that completely.
But what is not okay is to simply reject regulation out of principle, or to complain that it is always too expensive. Lehman Brothers happened precisely because we did not have enough good regulation and supervision. And let us be honest: The costs of regulation that banks have to bear are clearly less than what society – more specifically the taxpayer – has already had to bear for the mistakes of the past caused by insufficient regulation. What is also not okay is to forget the lessons we have learned from the global financial crisis. And we simply cannot allow hard-won and internationally agreed regulations to be ignored or reversed. In an increasingly complex and interconnected world, it is essential that we work together.
In 1946, American Secretary of State, James F. Byrnes, gave his famous “Speech of Hope” not too far from here in Stuttgart.In it he said:
“We have learned, whether we like it or not, that we live in one world, from which world we cannot isolate ourselves.”
His words were true then. And they are still true today. Peace and prosperity in one country cannot come at the cost of peace and prosperity in another country. Germany is strongly committed – especially during its Presidency of the G20 – to ensure that we continue to work together to make the world a fairer, more stable, more prosperous place for all.
Before I finish, maybe just one last word:
I have spoken about openness and international cooperation, how they are the basis for stability and prosperity. We find ourselves today in Frankfurt, one of Germany’s most open and international cities, with a long banking tradition. So if you are looking for a solid, reliable and proven location as a base for banking operations in the heart of Europe, you could do a lot worse than Frankfurt.
Rest assured: You would be very welcome here.